Mumbai: ITAT declares redevelopment rent as tax-free, bringing significant relief to citizens

Mumbai: In a relief to lakhs of families living on rent received from the redevelopment of their homes, the Income Tax Appellate Tribunal (ITAT) has ruled that the rental compensation received during the period of having got displaced is non-taxable.

The order was pronounced by the Mumbai Bench of ITAT on April 4 after Ajay Parasmal Kothari, a former flat owner and an affected party, moved the tribunal.

Know the norm:

In the redevelopment real estate industry, the norm is that the developer taking up the project pays monthly rent to the residents of the building till the time their homes are reconstructed and handed back to the owners. Usually, the rent is utilised to temporarily reside in the alternate accommodation. As the Income Tax rules, rental income is taxable, hence the case is if such compensatory rental amount too should be considered as “income” or not.

This particular case was chosen under the Computer Aided Scrutiny Selection (CASS) mechanism for the fiscal year 2012-13. During the scrutiny, it was found that he had received ₹3.7 lakh as compensatory rent from the developer of the society Kothari lived in. As he had not utilised the proceeds for alternative accommodation, the Income Tax officer considered it under “income from other sources” category that amounts to taxable income.

Dispute raised with commissioner

A dispute was raised with the commissioner, upholding the levy as taxable income. Not satisfied with the outcome, Kothari approached the ITAT that he lived with his parents, he still faced hardships due to vacating his flat for redevelopment.

After presenting his side of the case with the tribunal, it overturned the earlier decision and ordered that the rental compensation received during the redevelopment phase does not fall under the taxable income bracket. During the argument, he relied upon the earlier similar case wherein it was decided that such receivables are not to be taxed.